Why Earnest Needed to Be Built

I started Earnest because the credit system in the United States is broken. The core technology behind it is already a half-century old, and very little has changed since its original inception. It is safe to say it is in need of an update.

There have been several times in my life when I’ve been denied loans or credit cards. This was not because I had any history of being financially irresponsible, but because traditional banks never took the time to truly understand me. The problem I faced had little to do with my actual creditworthiness and a lot to do with whether it was “worth it” to lend to me. Our backward-looking credit and banking system make only a minimal effort to consider one’s current financial information and future earnings potential. The bottom line is that banks no longer see value in understanding both an individual’s financial and professional picture, much less give them the chance to show that they are, in fact, great.

My experience is not unique – most of my friends and family have faced similar dismissive treatment. My sister is a straight-A graduate student at one of the best universities in the country. She has been banking responsibly with her traditional bank for over 5 years. Yet they still will not give her a credit card.

“The more I learned about the system and the backward business model of traditional lenders the more it became increasingly clear that the focus was on fees, instead of trust.”

The more I learned about the system and the backward business model of traditional lenders the more it became increasingly clear that the focus was on fees, instead of trust. I became increasingly frustrated because I truly believe that the majority of Americans are financially responsible. So why are everyday consumers being grossly overcharged for borrowing money? Banks borrow money at incredibly low rates. The rate at which banks borrow money from each other, the one-year LIBOR, is currently at a miniscule .55%. Yet the average personal loan is around 12% – if you can even get one. Most banks prefer not to offer personal loans, and many of the largest banks no longer do. Instead, they only offer borrowing through credit cards where the average interest rate is even higher, between 15 and 16%. This is primarily because banks do not make high enough profit margins when they lend to low-risk individuals who responsibly pay on time. For them, large profits are found by charging customers high-interest rates and even higher fees.

What about the vast majority of Americans that don’t want to pay these high rates? Should they not be able to borrow money at a reasonable and fair rate? Should they not be able to get a loan based on the merits of who they are instead of how our broken credit system sees them?

At Earnest, we think differently. We do merit-based lending and offer one low rate of 6% APR for financially responsible people. These are loans for getting engaged, moving across the country for a new job, going on your honeymoon, remodeling your house, and many other milestones that we all face throughout our lives. The traditional banks don’t think loans like this make sense, but I do. That’s why I am building Earnest.

I am building Earnest for all the amazing teachers and nurses and firemen and policemen. I am building Earnest for all the hardworking lawyers and doctors and engineers. The software developers and the designers. The dentists and the pharmacists and the physical therapists. The marketers and the veterinarians. The armed service men and women who serve our country. Whether you work in a non-profit or a for-profit, in public service or the private sector – Earnest is for all of us. Financially responsible Americans deserve to be treated fairly. We all deserve something better.